Magazine

Blow After Blow For Midwest Farmers

October 02, 2005

What Steve Pitstick can do to manage the precarious business of farming he does. He attached a global positioning system to his combine so he can precisely map the output of the 2,220 acres of corn and soybeans he has planted across central and northern Illinois. His grain dealer sends the latest quotes for corn futures at the Chicago Board of Trade to his cell phone so he has as much information as traders do. And he spends hours a week at his computer, using Microsoft () Excel to update production forecasts. But all this, he knows, is no protection against drought, high fuel prices or a devastating storm nearly 1,000 miles away.

Hurricane Katrina shut down ports along the Gulf Coast, through which nearly two-thirds of the country's grain exports are shipped. Eight of the 10 export facilities in the area are up and running but at nowhere near full capacity. Middlemen are reluctant to buy crops they can't move out quickly, so the price of a bushel of corn is roughly $1.65, 20 cents lower than usual. "There are buyers, but basically they want to steal it from you," jokes Pitstick, whose $750,000-a-year operation is typical of grain farms in the Midwest.

Making matters worse, Katrina has all but ensured that energy prices will remain high for a while. That's a major problem since fuel-related items accounted for about one-quarter of cash expenditures on Midwestern crop farms last year, according to the Center for Farm Financial Management at the University of Minnesota. And a summer-long drought has withered some of Pitstick's corn. "There is not much you can do when you have low grain prices and you end up with a low yield," says Corinne Alexander, assistant professor of agricultural economics at Purdue University. "That's possibly the worst-case scenario for farmers."

ESCALATING COSTS

Pitstick would not disagree. While the damage to farms along the Gulf Coast wasn't as bad as initially feared, and farmers in other parts of the country expect a good harvest, those in Illinois and Missouri are bracing for a lean year. Pitstick, for one, won't turn a profit. He's going have to rely on government subsidies and his insurance just to get by.

But nobody survives for long on the farm without plenty of old-fashioned ingenuity -- and Pitstick provides a good example of the mix of high- and low-tech solutions farmers in the Midwest are employing to deal with this season's crises. Since the Mississippi is congested with barges, he decided to delay selling his crops for a few months. And he's looking at all sorts of ways to cope with the longer-term issue of high fuel prices. "Farmers are by nature eternal optimists," says the 46-year-old Pitstick, whose brother raises hogs and whose father has a 1,000-acre farm down the road.

Not so the next generation, however. The deteriorating economics of farming have scared off his two sons. They help out on the farm but will most likely make their livelihoods elsewhere. The eldest works in construction management; the younger son just got a two-year degree and is considering further education.

The first move Pitstick made after the storm was to lock in January and February contracts for corn delivery that guarantee him $2.40 to $2.50 a bushel. And while he'll have to pay to store the corn until then, Pitstick figures he'll be better off than he would be selling now.

Adjusting to higher fuel costs hasn't been as easy. Pitstick uses 200 to 300 gallons of diesel a day to run his machinery during harvest time and depends on propane to dry his corn. Those prices have increased about 30% in the past year. Natural gas is the major component in manufacturing the anhydrous ammonia fertilizer he uses on his corn crops. Pitstick estimates that his fertilizer costs alone have doubled, to $70 an acre.

In response to these escalating costs, Pitstick has invested in the latest technology. The GPS on his combine allows him to create detailed maps that show exactly how much each acre produced; that, in turn, helps him decide how much fertilizer to use. The less corn an area produces, the less fertilizer the soil needs. "Forty or 50 years ago, you just dumped an equal amount of fertilizer in the area and hoped for the best," says Pitstick.

CUTTING CORNERS

Pitstick also has a new "no till" attachment for his planter that makes it possible for him to drive the machine across the land only once when putting in the crop instead of three to four times. But that doesn't soften the soil as much as the more intensive process, which could mean his yield is diminished. This year, more so than ever, Pitstick is trying to dry as much corn in the field as he can to save on propane. By doing so, though, he risks seeing the corn fall off the stalk or get eaten by insects or animals.

Some of his neighbors are thinking about growing more soybeans, since the crop requires less fertilizer. But Pitstick is unsure, in part because South American farmers are increasing their soy production, too. "It's all a balancing act," he says.

Then there are the things Pitstick can't do much about: the drought in Illinois and the good fortune of farmers in other parts of the country. Rain finally came in August, so his soybean crop wasn't damaged, but it was too late for the corn. Stalks that should be 10 feet high are barely 6 feet. Pitstick estimates that only his best acreage will yield as much as nearly all of them did last year, about 180 bushels. His worst won't yield anything.

It doesn't help that much of the rest of the U.S. may have a bumper crop this year. The U.S. Department of Agriculture forecasts that corn production will be 10.6 billion bushels -- 10% below last year's level but still the second-best year on record. "It's going to be really tough for farmers to break even in Illinois," says Philip Nelson, president of the Illinois Farm Bureau.

Pitstick is hoping just to meet his obligations: Like the majority of farmers in his state, he rents most of the land he farms. And he has to increase his operation by 5% to 10% each year just to keep his profit at the same level. That, too, is becoming difficult as urban sprawl claims more and more land. Much of the area around the 70 acres he does own, far outside of Chicago in Kane County, has been converted to a more profitable use -- developments of $250,000 homes.